PIERRE | The trustees for the South Dakota Retirement System are going another direction for an outside auditor.
On Wednesday evening, they chose the Eide Bailly firm, which has an office in Sioux Falls, after conducting two sets of interviews and holding a lengthy closed-door discussion.
KPMG, a firm with clients around the world, has held the external auditing contract for the past 12 years and stressed the importance of continuity in its bid for renewal.
KPMG partner John Aesoph has been the lead representative on the SDRS account. He and another KPMG official were formally accused in January of wrongdoing in civil complaints by the Securities and Exchange Commission regarding the collapse of TierOne Bank.
Federal regulators closed the Lincoln, Neb.-based bank in 2010. It was sold to Great Western Bank.
The SDRS trustees and administrators didn’t make any public mention Wednesday of the TierOne allegations. Aesoph was part of a three-person team that delivered the firm’s presentation to the trustees.
A SDRS screening committee recommended interviews be held by the trustees with KPMG and Eide Bailly representatives. Those were held Wednesday afternoon in open session.
During the KPMG presentation, Aesoph told the trustees he didn’t know price was a consideration in the trustees’ deliberations this year.
Both firms’ teams talked about how they value investments. Eide Bailly’s firm received much more strenuous questioning from two officials of the State Investment Office.
KPMG sends a sampling of the investments for pricing analysis to a national pricing desk.
“We don’t necessarily rely on information that comes from the bank,” said Michele Stromp.
She would have been replacing Aesoph as the lead representative if KPMG won the SDRS account again.
KPMG is an international firm with more than 145,000 employees in 152 nations and is considered one of the Big Four accounting firms.
Eide Bailly is a firm of about 1,300 people and ranks among the top 25 accounting firms nationally in revenue, according Kevin Doyle, a partner in the Sioux Falls office.
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Doyle said there won’t be surprises on bills.
“We wouldn’t be here if we weren’t technically competent,” he said.
Eide Bailly also serves the South Dakota Housing Development Authority.
KPMG has been paid $117,320 so far this fiscal year. The firm was paid $110,000 last year and $107,500 the previous year.
Eide Bailly partner Lealan Miller of Boise, Idaho, said the his firm has staff members with expertise in determining investment fair values and uses an outside consultant as needed.
State Investment Officer Matt Clark said the South Dakota portfolio is different than the Idaho Endowment Fund, which uses an external manager.
Eidey Bailly audits the Idaho investment fund.
Clark said there are “a lot of derivatives” in the South Dakota portfolio and more than 25 percent of the portfolio is in partnerships
“All of the accounting is done internally at the investment office,” Clark said about the South Dakota system. “That is kind of a big deal. That is the risk everybody is worried about.”
Miller said Eide Bailly would adjust its approaches to fit the South Dakota’s system’s characteristics.
The SEC accusations against Aesoph and senior manager Darren Bennett center on claims they used outdated appraisals of real estate that was collateral for TierOne loans and didn’t properly examine the bank’s financial statements.
SDRS reported as of the June 30, 2012, the fiscal 2012 year, that its portfolio totaled $7.8 billion and was 92.6 percent funded against its long-term liabilities under the present accounting system.
SDRS is the public pension for state government state universities, many school districts, many municipal and county governments and various special government entities in South Dakota,with more than 400 participating units.
It had 75,368 members and 22,408 members receiving benefits as of the June 30, 2012.